Cash is Not King in Fundraising: Results from 1 Million Nonprofit Tax Returns

Professor Russell James III , J.D., Ph.D., CFP®

Director of Graduate Studies in Charitable Financial Planning Texas Tech University

Source: 1,055,917 nonprofit tax returns (IRS Form 990) filed electronically for the tax years 2010-2015 and part of 2016 with statistical analysis of the 761,876 forms from 205,696 nonprofit organizations reporting positive contributions.

Noncash gifts predict long-term fundraising growth

Nonprofits that effectively grow contributions income can

differ in many ways, but simply knowing what type of gifts

an organization raises is a surprisingly powerful indicator. For

example, nonprofits raising over $1 million in 2010 that

reported only cash gifts on e-filed nonprofit tax returns in

2010 and 2015 experienced an average total growth in

contributions of 11% over these five years, barely keeping up

with total inflation of 8%. In contrast, those reporting any

noncash gifts in 2010 and 2015 grew their total

contributions, on average, 50% over the same five-year

period. Those specifically reporting noncash gifts of securities grew 66%. Thus, nonprofit organizations consistently

receiving gifts of stocks or bonds grew their contributions six times faster than did those receiving only cash. Although

2010-2015 is the longest period with complete data, the results are not specific to just those years. For example, the 3-

year rolling average total contributions growth ending in ’13, ’14, ’15, and ’16 was 5%, 1%, 2% & 0%, respectively, for

nonprofits raising only cash gifts, but 34%, 30%, 30% & 25% for nonprofits raising any noncash gifts, and 44%, 42%, 39% &

33% for nonprofits raising noncash gifts of securities.

This applies to nonprofits at all fundraising levels

These results show a dramatic difference overall, but how

does this apply to organizations starting at different initial

fundraising levels? The second figure shows that, regardless

of an organization’s starting contributions level, those

nonprofits consistently raising gifts of noncash assets – and

particularly gifts of securities – grew total contributions much

faster than did those raising only gifts of cash. Thus, the

power of noncash gifts to predict long-term fundraising

growth applies to nonprofit organizations at every

fundraising level .

A smaller share from cash means growing contributions

Beyond receiving some noncash gifts, what happens when

contributions shift towards a larger share of cash gifts or a

larger share of noncash gifts? To answer that question, this

analysis used all 761,876 of the 1,055,917 nonprofit tax

returns that reported positive contributions, and compared

organizations only with themselves at different points in

time. Within the same organizations, when the share of total

contributions coming from cash grew by 10%, total

contributions in that same year, on average, fell by 13%. For

example, if an organization raising $10 million with 80% of

donations coming from cash experienced a shift to 90% cash donations in the following year, then it should also expect

total contributions to fall 13% (to $8.7 million) in that same year. In contrast, if the organization experienced a 10%

increase in the share of gifts coming from securities or real estate, this would predict a simultaneous increase in total

contributions of 18% or 26%, respectively.

Gifts of assets are psychologically different

Beyond simple opinions or war stories, the previous results

conclusively demonstrate that organizations raising noncash

gifts experience dramatically greater growth in total

contributions, both contemporaneously and over the long

term. Why? This is likely due in part to the effects of mental

framing. First, it is important to understand that wealth is

not held in cash . Census bureau estimates suggest that only

about 3% of household wealth is held in cash and checking

accounts. When fundraisers ask for cash, they are asking

from the “small bucket.” This makes a psychological

difference because it changes the reference point for the gift. The same gift may seem ridiculously large when compared

to other checkbook purchases (elective expenditures from spendable income), but quite small when compared with total

wealth (other noncash assets). Donors who have never made a gift from assets may simply never have considered giving

from wealth rather than giving from spare income. This is particularly important considering findings from experimental

research demonstrating that people are much more willing to make charitable donations from irregular, unearned

rewards (such as might occur with an appreciated asset) than from regular work earnings.

Gifts of appreciated assets are also cheaper than gifts of cash because the donor avoids capital gains taxes. This special

benefit is particularly important under the new tax law, because it applies to all donors, even non-itemizers who can’t use

charitable deductions. Donors can benefit even when they don’t want to change their investment portfolio. For

example, instead of donating cash, a donor can give shares of appreciated stock and then use the cash to immediately

purchase identical replacement shares, leaving the portfolio intact, but eliminating all capital gains.

Next steps for nonprofits

Comprehending the importance of gifts of noncash assets

means understanding that current fundraiser crediting

systems are misaligned. Gifts of noncash assets are more

important for the nonprofit organization and more beneficial

for the donor, but they also require more fundraiser effort. If

fundraisers are not given additional recognition for the

additional effort and expertise required for such gifts, they

will be rewarded for hitting the “easy button” of asking only

for cash, keeping the organization stuck in the slow-

growth/no-growth category. In contrast, those nonprofits

that intentionally pursue noncash gifts can generate both immediate tax benefits for donors and long-term fundraising

growth benefits for the organization.

Raising gifts of noncash assets is not always as simple as asking for a check. The rules for documenting, valuing, and

deducting such gifts are different, but fundraisers can receive free training (e.g., videos at https://goo.gl/cjXgsZ and

textbook at https://goo.gl/B2yxen) and use the assistance of expert advisors and consultants. Accepting gifts of noncash

assets is actually safer and easier today than in the past. Some donor advised funds now accept any type of property,

transferring cash to the selected nonprofit after the sale. In addition, new legal instruments such as the single-asset LLC

allow nonprofits to receiving property gifts without chain-of-title liability as in years past.

The full technical paper reporting detailed results is available at https://ssrn.com/abstract=3126983

About the author: Professor Russell James, J.D., Ph.D., CFP® has published peer-reviewed scholarly articles in more than

forty different academic journals and has been cited in outlets such as The Economist, The Wall Street Journal, The New

York Times and The Chronicle of Philanthropy. He is Director of Graduate Studies in Charitable Financial Planning at Texas

Tech University in Lubbock, Texas where he holds the CH Foundation Chair in Personal Financial Planning.

Licensed under Creative Commons Attribution 4.0. Please feel free to copy, distribute, or use this document or any results in this document with attribution whenever it is helpful to you.